DP3, Inc.

DP3 is appealing a number of procedures being used by the Pension Benefit Guarantee Corporation in calculating the pension benefit of participants in the Delta Pilots Retirement Plan. These are procedures which lower the payments made to at least 3,500 of the 6,500+ currently retired pilots by a net present value of $654 million (an estimated average of $1,200/month reduction.)

Note: Be sure you take the time to understand the difference in Policy appeals and error/calculation appeals.

The Primary Policy/Procedure Appeals: Where the real money is.

Our primary appeal issues address the way the PBGC is defining our Qualified benefit using Internal Revenue Code (IRC) limitations in place 5 years prior to the date of plan termination (DOPT), and in other cases, 3 years prior to plan termination. The specifics are somewhat complicated and vary between individuals, but the basic effect is the same in all cases: a significant reduction in the Qualified payment the retiree was receiving at DOPT. Applying these "look backs" to the IRC limits decreases the present value of the benefit of the 3,500 retirees affected by $454 million. For a detailed discussion of this policy appeal and why it's the most important, click here to read the bottom section of this article entitled "Details on the Primary Policy Appeal."

Other Policy Appeals

DP3 will be addressing a number of other issues in the appeals, including plan valuation and the age and length of service reductions due to the look back procedures. These issues represent a total present value of $100 million in benefit reductions to DP3 members.

Errors Appeals: Not a big issue!

Quite frankly, PBGC math errors are not a big issue. The few calculation errors we have found account for no more than $215/mo. Those errors apply to certain 2002 and 2003 retirees for whom the benefit calculator works accurately and will be included as part of the DP3 consolidated appeals.

This is the reason we have not recommended the membership use the actuary service. We went to a great deal of work to develop it, at which point it became clear that it was not necessary.

While PBGC calculation errors are simply a minor issue financially there are concerns about some of Delta Air Lines retirement calculations. We have not seen any errors in the total retirement benefit, but there are concerns about the way DAL split the Qualified and Non-Qualified portions of the benefit. After years of legal wrangling and PBGC foot dragging on our Freedom of Information Act (FOIA) requests we are in the process of gaining access to the source data for the retirement calculations of a representative sample of the retirees. Once we have analyzed that data we will decide whether it should become an appeal issue. This potentially affects several thousand pre 2002 plan year retirees. Note that at least 1,000 of this group will benefit from successful policy appeals regardless of how the calculation issue plays out.

DP3 is Not Suing Delta Air Lines!

Bankruptcy is over and that creates huge, expensive hurdles to any legal action dealing with pre-bankruptcy issues. While it may not fulfill our sense of justice, DP3 is in the business of recovering of lost benefits, not retribution. We (and our attorneys) will not spend members' money unless the potential return justifies it.

At this time the only economically meaningful path for the retirees is in addressing the PBGC issues.

The Appeals Timeline

The appeals process is slated to begin late this summer. The first step is called the administrative appeal and will be a presentation by our attorneys to a special internal board of PBGC administrators. This process can take up to a year. While the PBGC has not shown so far a willingness to objectively entertain our arguments, we are hopeful that that will change, particularly because we have a number of compelling arguments.

After the administrative appeals are exhausted – but not until that time – we are free to challenge the PBGC's actions in Federal District Court if we are not satisfied with the their administrative ruling. It is likely that there would be appeals by the losing side after the district court ruling. It is possible the rulings could be accelerated by certain rulings in the USAir appeals, currently in District Court.

We are confident that our arguments will be persuasive in District Court. We are particularly confident in the level of preparation and the skill of the legal team that has been assembled. But the material is complicated and our success will depend on the willingness of the judiciary to understand the nuances and complexities of the issues. This is always the case in legal efforts of this kind. If the judge(s) take the time to understand our issues we will prevail because we are right.

Details on the Primary Policy Appeal

Your original retirement was made up of a Qualified portion – which was paid from the Delta Pilots Pension Plan – and a Non-Qualified portion – which was paid directly from Delta.

The Non-Qualified payment you were receiving in 2006 was addressed in bankruptcy court and is no longer a factor in our efforts to recoup lost benefits. None of the current board members were meaningfully involved in that effort.

The amount of the Qualified portion was defined by Internal Revenue Code limits. These limits were originally designed (in the 1980s) to keep executives from shielding large portions of their benefits from taxes, and to generate current revenue for the government. Without going into a detailed history of these limits, they increased by law during the 5 years prior to the plan termination – Increasing the amount of money many retirees were receiving from the Qualified plan, and decreasing the amount the retiree was receiving from the Non-Qualified plan by the same amount. At Delta this was normally implemented at the beginning of each plan year on July 1.

Depending on your age at retirement and your date of retirement, that means that you may be now receiving from the PBGC as much as $35,000/year less than you were in September, 2006. ( A pre1972, minimum benefit eligible pilot who retired prior to the 2002 plan year and was receiving $175,000/year at DOPT , including the offset for his lump sum, would have his benefit reduced to $140,000/year, including the offset for his lump sum. Offset for lump sum = the annuity value of the lump sum. This reduction is because the PBGC is using the 2001 IRC 415b limit on payouts from a Qualified plan of $140,000/year, rather than the 2006 limit of $175,000/year).

More typically, a pilot who retired at age 60 in the 2002 plan year is receiving $18,000/year or $1,500/month less that he was at DOPT. ( The PBGC is using the 2001 IRC 401a limit on earnings of $170,000/year rather than the 2002 limit of $200,000 that the pilot retired under. When used in the formula benefit calculation this reduces the monthly payout to this retiree by $1,500.)